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Edited Transcript of REIS earnings conference call or presentation 9-Mar-17 4:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Reis Inc Earnings Call

NEW YORK Mar 9, 2017 (Thomson StreetEvents) -- Edited Transcript of Reis Inc earnings conference call or presentation Thursday, March 9, 2017 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lloyd Lynford

Reis, Inc. - President and CEO

* Mark Cantaluppi

Reis, Inc. - VP and CFO

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Conference Call Participants

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* Ian Corydon

B. Riley & Co. - Analyst

* John Godin

Lake Street Capital - Analyst

* Austin Moldow

Canaccord Genuity - Analyst

* William Gibson

ROTH Capital Partners - Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Reis Incorporated fourth-quarter 2016 financial results call.

(Operator Instructions)

As a reminder, this conference call is being recorded. I would now like to turn the conference over to the President and CEO of Reis, Mr. Lloyd Lynford. You may begin.

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Lloyd Lynford, Reis, Inc. - President and CEO [2]

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Thank you. Good morning. This is Lloyd Lynford, President and CEO of Reis. Joining me on our fourth-quarter 2016 conference call, are Jonathan Garfield, Co-Founder and Executive Vice President of Reis; Bill Sander, President and COO of Reis services; Mark Cantaluppi, Reis's Chief Financial Officer; and other members of Reis's Senior Management Team.

First, I need to provide our legal disclaimer. Today's comments may include forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those described or implied in those forward-looking statements. These statements are based on currently available information, and include current Management outlook or expectations, including our outlook for FY17. In addition, we do not plan to update any forward-looking statements to reflect subsequent events or circumstances, or if our expectations change. For more information relating to risks and uncertainties involved in our forward-looking statements and the Company generally, please see the risk factors and cautionary statements regarding forward-looking statements sections of our recent filings with the SEC, including our December 31, 2016, annual report on form 10-K, issued earlier today.

This call is being broadcast live over the Internet and will be available for replay for a period of time following the call. A link to the webcast of this call, as well as information on the replay, is available at www.Reis.com/events. Our earnings press release and Form 10-K were both issued this morning, and can also be found at the Investor Relations portion of our website.

Today's call will include my comments on Reis's financial and operational results. I will then ask Mark to review our financial performance for the fourth quarter of 2016, and to discuss 2017 guidance. After Mark's comments, we will open the telephone lines for analyst questions.

Reis's fourth-quarter revenue totaled $11.6 million, compared to $14.2 million one year earlier. 2015's fourth-quarter revenue was swelled by non-core revenue of $2.9 million from a custom database deliverable and one-time settlements for past unauthorized usage of Reis's data. Recurring subscription-based revenue rose in 2016's fourth quarter to highest level in Reis's history.

2017's first quarter is the last remaining one in which we have a challenging comparable reporting period. In 2016's first quarter, we presented a pro forma adjustment of $1.2 million for the final deliverable under the custom database contract signed in 2015's fourth quarter.

Revenue for the full year of 2016 totaled $47.5 million of which $45.4 million was subscription revenue, up 3.8% over 2015. We believe that our disaggregation of subscription versus other, or non-core, revenue is helpful in communicating the underlying strength of Reis's business.

On a full-year basis, 2016 marked a return to a stronger base of recurring revenue versus 2015. Just under 96% of our total revenue last year was in our subscription-related product lines, consistent with the more normalized composition of our revenue.

In 2015, in contrast, subscription revenue accounted for only 86% of our total. This means, of course, that we have entered 2017 with a book of business that is more recurring in nature and supports our outlook that our renewal rates will continue to rise, a trend that began in the second half of 2016.

Our year-over-year growth and other key metrics also represent positive indicators. After adjusting for 2015's custom database deliverable, deferred revenue grew by just under 4% in 2016.

Aggregate revenue under contract grew by just under 9%, and reached a record of $51 million. Additionally, the pace of our new business wins in the latter part of 2016, win back subscribers who had experimented with alternative providers, particularly in the conventional apartment sector, and an uptick in our renewal rates in the third and fourth quarters, all reinforced our belief that Reis is poised for a return to more dynamic growth in 2017. We believe that faster growth will become more apparent in the second half of the year, as the full impact of a higher renewal rate exerts its cumulative effect on revenue recognition.

Reis services EBITDA in the fourth quarter of 2016 totaled just under $2.7 million. For the full year, it totaled approximately $15.5 million, representing an EBITDA margin of 32.7%, while we invested significantly in our databases, most notably in launching the nation's first database on the affordable housing sector, and expanding our coverage of sales comparables to virtually every commercial property transaction anywhere in the country.

At the same time, we have invested in sales and marketing while also incurring approximately five months of double rent through October 31, while we built out and moved to our new Manhattan headquarters. Those duplicate rents in moving expenses are now behind us.

As my remarks this morning will elaborate, the two database and product initiatives I just mentioned, affordable housing and our every sale, everywhere program are essential to recent strategy in 2017. I will also provide an update on the significant expansion over the last year to our sales and marketing capability, an investment that has been made to maximize all of Reis's products, including our new databases.

As I noted, I believe Reis is at an inflection point to realize significant revenue in EBIT growth. This opportunity results from a convergence of the two prongs of our growth strategy.

Specifically, Reis is set to capture a meaningful share of the market for properties level record information, especially sales comparables. With the launch last September of our every sale, everywhere campaign, we have begun to win business that has long been the domain of our leading competitor, whose lack of product focus, more limited analytical offering, high costs, and less responsive customer service, have driven many firms to seek alternative solutions.

Reis is now positioned to benefit from these marketplace realities. We coexist and have replaced our competitor at leading organizations of property tax and brokerage. As we introduce land sales later this year, and as we add more contextual market information to the property record, Reis will further exploit our emerging product strength and lower prices to gain market share.

As other vendors have focused their energies and resources on pursuing advertising-related revenues, Reis alone has relentlessly pushed on building the databases and decision-support tools that the industry, including national, regional, and local participants, across virtually every sector must have in order to remain competitive in the acquisition, financing, management, and disposition of commercial real estate assets. With [advantages], such as our market analytics tool, the nationalization of our sales transaction coverage, the launch of the first only affordable housing module, and the first and only coverage of new construction activity in the self storage sector, we have further solidified Reis's indispensability to portfolio managers and C-suite executives, who must maintain a national perspective on the US commercial real estate market.

At the same time, beneath the umbrella of these major models, Reis has also added to our property level reports ever finer details that provide more analytical power to commercial real estate professionals along the front lines of deal flow, underwriters, appraisers, buyers, sellers, and others who necessarily maintain a more transactional, more local view. Both perspectives, the national and the transactional, are influential, as we compete for new subscribers and at renewal time. That the two distinct constituencies increasingly are choosing to enter in to multi-year subscription agreements is a testament not only to their confidence that Reis offers superior market intelligence, but also the success of Reis's relentless two-prong development strategy that has been designed to address both groups.

During 2017, our product development, quality assurance, economics and technology teams, will press our competitive advantages beyond property sales transactions, and apply Reis's decades of know-how to providing property-level details and contextual intelligence about all commercial properties in the nation, whether or not they have traded within the past decade, beginning with Reis's 275 metropolitan markets. We believe that Reis's position to compete more aggressively for a significant share what we estimate is a several hundred million dollar market per sales transaction data. Many firms are currently spending six and seven figures to provide their organization access to a continuous stream of sales transactions.

Simply stated, Reis, with its far more comprehensive offering now fulfills this pressing business need better than the competition, and we will further this advantage during 2017. Our investments in developing more granular property databases have already paid dividends in 2016, and we believe will continue to do so in a more expansive way in 2017 and beyond.

Clearly, this paradigm-changing product can only be optimized by more aggressive targeted sales and marketing. Therefore, in 2016 and early 2017, we expanded our field-based sales personnel to increase our engagement with clients and prospects, while also being closer to them. This effort builds on our 2015 sales expansion to Southern California, and includes additional key sales leadership and sales hires in other important markets throughout the United States.

We recognized that to maximize the investment in our field sales organization, we needed to ramp up the senior front-line sales management team, and provide the sales enablement technology tat help make remote sales teams more productive. So, in addition to the 2016 new positions created and filled, a senior vice president of sales and two regional sales vice presidents, we have built a sales enablement team.

As I noted at the outset of today's call, during the latter parts of 2016, there were many positive indicators, which we believe will play out promisingly over the course of 2017. In addition to the return of our revenue to almost entirely subscription-based, our aggregate revenue under contract is at an all-time high. Our renewal rate has been trending up since its mid-year low.

The continuing push to develop databases with more granular content has started producing exciting results. All of these initiatives set the stage for improving financial performance during 2017, and particularly in the second half of the year, as the cumulative effect of higher renewal rates takes hold, and our expenses are not burdened by 2016's double rent. The methodical execution of our business plan, our attention to building the Reis brand, and the databases that facilitate superior business decisions by our subscribers, ensure that Reis's prospects have never been brighter.

Let me now turn the call over to Mark Cantaluppi.

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Mark Cantaluppi, Reis, Inc. - VP and CFO [3]

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Thank you, Lloyd. I will be presenting and discussing Reis's fourth-quarter and annual results this morning, which are more fully described in the financial results press release and the Form 10-K issued earlier today. As we have been discussing for the past two quarters, 2016 has been a challenging comparable reporting year, due to the significant successes of 2015 and the difficulty of replicating those successes in 2016.

Reported 2016 total revenue income from continuing operations, net income, Reis services EBITDA and consolidated adjusted EBITDA, when compared with the respective 2015 amounts, have all been impacted by four main factors. One, revenues associated with significant custom data deliverables in 201. Two, a decline in our trailing 12-month renewal rates.

Three, a reduction in revenue from large one-time settlements under our intellectual property compliance initiatives. And four, multi-year contracts and their flattening effect on growth rates. I will touch upon each of these over the next few minutes.

In the fourth quarter of 2016, total revenue aggregated $11.5 million, which included $11.3 million of subscription revenue, and $200,000 of other revenue. For the year ended December 31, 2016, total revenue aggregated $47.5 million, including subscription revenue of $45.4 million, and other revenue of $2.1 million. Total revenues declined in 2016 from the 2015 reported amounts were 18.7% for the quarter and 6.6% for the year.

In order to provide insight into 2015 and 2016 relative performance, we have disaggregated Reis's total revenue into two components, subscription and other. When I refer to subscription revenue, the term is self-explanatory. Other revenue specifically includes revenue related to contracts for one-time custom data deliverables, and one-time fees for settlements of previous authorized usage of Reis data.

Historically, nearly all the Company's revenue could be characterized as a subscription-based or higher-quality recurring revenue. In 2015, significant opportunities arose that resulted in Reis realizing a greater amount of revenue and cash flow that was more non-recurring in nature.

Excluding the 2015 custom data deliverables and the one-time settlements from intellectual property compliance efforts, 86% of Reis's 2015 annual revenue was of a higher-quality recurring nature. By comparison, a subscription-based recurring revenue for all of 2016 aggregated approximately 96% of total revenue. Therefore, despite a reduction in reported total revenue management believes that the Company will be well-positioned as we enter 2017 due to the high percentage of revenue that is of a recurring nature.

By comparison, a subscription-based recurring revenue for all of 2016 aggregated approximately 96% of total revenue. Therefore, despite a reduction in reported total revenue, Management believes that the Company will be well positioned as we enter 2017, due to the high percentage of revenue that is of a recurring nature. Lloyd and I, in our 10-K, earnings release, and throughout this call, will be utilizing this terminology to differentiate between what is recurring subscription revenue, and what is other lumpy and non-subscription in nature.

Let's focus on our subscription revenue, first. Subscription revenue increased by approximately 0.7% in the fourth quarter, and by $1.677 million or 3.8% for the year of 2016 over 2015. Renewal rates during the second quarter of 2016 hit their TTM low, and had a negative impact on our subscription revenue growth. A handful of factors contributed, cancellations of IP infringement-related subscribers, customer losses from subscribers that exited the CRE business, and losses due to price increases.

We have made progress on renewal rates in the second half of 2016. In the second quarter, our renewal rates hit their recent quarterly low at an overall renewal rate of 74%, improving 10 points to 84% for the third and fourth quarters.

Including price increases, our third and fourth-quarter renewal rates were 85% and 90%, respectively. We are pleased with this promising trend of quarter-to-quarter improvement.

Regarding other revenue, the Company recognized significant revenue in 2015 from custom data deliverables and related services for one of our existing Reis SE subscribers. The revenue recorded reflected the portion of the custom data files that was delivered in June and December 2015, and February 2016 positively impacting results for the second and fourth quarters of 2015, and the first quarter of 2016. Revenue related to these deliverables aggregated $1.2 million in 2016, all in the first quarter, and $4.5 million in the year ended December 31, 2015.

In 2016, Reis did not replicate similar custom data sales. Although custom data sales generally, and the 2015 contract specifically, created a higher level of volatility in our 2015 and 2016 revenue and earnings, a significant amount of cash was generated by the 2015 custom data contracts. As we move forward into 2017, Management hopes to be able to identify opportunities to license custom data files, but structured as a subscription agreement with quarterly updates in order to record revenue ratably, consistent with how the Company recognizes revenue for Reis SE.

Reis continues to successfully resolve cases in which our intellectual property rights have been violated. In 2015 and 2016, the Company was very active in protecting its intellectual property by pursuing firms and individuals who had previously gained unauthorized access to our services. The discovery of the instances of unauthorized usage creates opportunities for Reis's compliance team to engage in productive conversations with firms regarding ongoing access to Reis data in accordance with the terms and subscriptions -- excuse me, in accordance with the terms and descriptions of the subscription agreements.

Reis has developed a programmatic approach to promptly resolving cases of unauthorized usage, and is devoting significant client services and account management resources to increase the renewal rates of IP infringement-related accounts to levels typical of all other Reis subscribers. Although identified instances of non-compliance remains steady, the frequency and dollar amount of one-time settlements were lower in 2016 than in 2015. Annual revenue from one-time settlement payments aggregated $931,000 and $2.6 million, in 2016 and 2015, respectively.

As our compliance team continues to identify instances of unauthorized access, the period of unauthorized usage is much shorter and report consumption is not as significant as cases that were settled in 2014 and 2015. Management believes that even though settlement payments will be lower, compliance resolutions will yield a continuing and significant volume of subscription contracts and recurring revenue for the foreseeable future. Obviously, these changes in our renewal rates, our IP compliance efforts, and the volume of custom data deliverables, directly impacted all of our 2016 financial results, which I will turn to now.

Consolidated income from continuing operations for the fourth quarter of 2016 was a loss of $230,000, or negative-$0.02 per diluted share, this is a decrease from the 2015 fourth-quarter income from continuing operations of $2.3 million, or $0.20 per diluted share. For the year ended December 31, 2016, income from continuing operations was $2.8 million, or $0.24 per diluted share, this is a decline from the 2015 periods reported income from continuing operations of $8.1 million, or $0.69 per diluted share.

Reis Management utilizes and monitors performance measures, such as revenue, deferred revenue, aggregate revenue under contract, EBITDA and adjusted EBITDA. EBITDA is income from continuing operations before interest, taxes, depreciation, and amortization expense. Adjusted EBITDA is EBITDA before expenses related to non-cash stock-based compensation.

I would like to refer you to the cautionary language included in the MD&A of our annual report on Form 10-K, and in our earnings release, both issued earlier today, about the use of EBITDA, adjusted EBITDA, and aggregate revenue under contract as non-GAAP measures, and the reconciliations of income from continuing operations to EBITDA and adjusted EBITDA for the respective periods, and deferred revenues to aggregate revenue under contract, as of respective balance sheet dates. These cautionary statements and reconciliations apply to all references made to these metrics on this call today. In addition, we present EBITDA and adjusted EBITDA on a segment and consolidated basis.

Reis services EBITDA was $2.7 million in the fourth quarter of 2016, a decline from the 2015 fourth-quarter reported amount of $6.5 million. Reis services EBITDA for the year ended December 31, 2016, was $15.5 million, down from 2015's $22.1 million. These decreases were primarily derived from the decreases in revenue I previously discussed, coupled with an increased level of expenses in 2016.

Total expenses, excluding interest, taxes, depreciation, and amortization, grew by 15% and 11% in the three months and year ended December 31, 2016. Expense increases are primarily due to increased employment-related costs and rent-related expenses.

Total rent expense increased $474,000 and $1.7 million in the three months and year ended December 31, 2016, respectively, over 2015. These amounts reflect the increase in both the square footage under lease, and the higher price per square foot, and include the duplication of rent from overlapping leases and other occupancy costs. Such cost duplication aggregated $135,000 and $721,000 in the three months and year ended December 31, 2016, respectively.

The effect of these expense increases and total revenue declines has contributed to the reduction in our EBITDA and EBITDA margins in the periods we are reporting today. EBITDA margins for the Reis services segment were 23.1% and 32.7% for the three months and year ended December 31, 2016, respectively.

Consolidated adjusted EBITDA for the three months ended December 31, 2016, was $2.3 million, a decline from the reported 2015 amount of $5.9 million. Consolidated adjusted EBITDA for the year ended December 31, 2016, was $13.5 million, a decline from 2015's annual amount of $19.5 million. The consolidated adjusted EBITDA margins were 20% and 28.5% for the three months and year ended December 31, 2016.

The Company continued to make significant investments in our Business, including our core Reis SE platform, in our portfolio analytics offerings, and from hiring in many departments, including strategic hires in sales and operations. The pace of our database and website enhancements accelerated in 2016.

These investments, coupled with the decline in total revenue versus 2015, negatively impacted 2016 Reis services EBITDA, and consolidated adjusted EBITDA growth rates and margins. We believe that such declines are temporary, as we expect that these investments will result in additional revenue and margin expansion in the second half of 2017.

Following are some consolidated balance sheet statistics as of December 31. Total consolidated assets aggregated $128 million.

Cash and cash equivalents at December 31, aggregated $21.5 million. During calendar 2016, we invested $8.5 million of cash on our website and database development, a 47% increase over the level of investing in 2015.

Related to financing activities, we utilized over $7.7 million of cash in 2016 to pay dividends at a quarterly rate of $0.17 per share, and spent $1.1 million on stock repurchases. We also invested $4.8 million for fixed asset additions, primarily in connection with the space build-out of our operations center in White Plains, New York, and our corporate headquarters in Manhattan. Management remains committed to allocating cash to investing in Reis's future, returning cash to shareholders in the form of dividends, and opportunistically repurchasing shares.

Customer receivables and net of allowances aggregated $10.7 million at December 31. We are reporting deferred tax assets on the balance sheet of approximately $16.8 million as of December 31. We utilized $1.6 million of this deferred tax asset in 2016. The deferred tax asset balance is expected to be sufficient to continue to shelter us from paying federal taxes for approximately the next four to five years, depending on our profitability in each period.

Total liabilities aggregated $31 million, of which deferred revenue was approximately $25 million. This balance is only $260,000 below last year's record level of deferred revenue. The 2015 balance included $1.2 million of non-subscription revenue that was recognized in 2016. There was no comparable amount in our 2016 deferred revenue balance.

Additionally, aggregate revenue under contract, which is a sum of deferred revenue and future revenue under non-cancelable contracts, for which we do not yet have the contractual rights to bill, totals $51 million at December 31, this amount is a record level for Reis. Of the $51 million of aggregate revenue under contract, approximately $34.8 million relates to amounts under contract for the forward 12-month period through December 31, 2017, also a record level.

On August 30, 2016, Reis's Board of Directors authorized a share repurchase program to purchase up to $5 million of the Company's common stock. As of December 31, the Company purchased over 54,000 shares at an average price of $21.11 per share, leaving over $3.8 million that may be used to purchase additional shares under the program in 2017.

Stockholders equity was $97.2 million at December 31. Total common shares outstanding aggregated $11.3 million, of which our directors and senior Management beneficially own approximately 23.2%.

Finally, I would like to provide our outlook for 2017. As we return our focus to 2017, Management believes that Reis will return to growth. Positive indicators for Lloyd and I include the Company's strong pace of new customer acquisition as we finish 2016, price increases on renewals, improving renewal rates in the latter half of last year, ongoing subscription opportunities created by the discovery of instances of unauthorized usage, our pipeline with respect to both subscription-based data deliverables and portfolio analytics, and the array of new products and enhancements that were launched in 2016 or are on the horizon for 2017.

We are guiding for annual 2017 total revenue to grow between 5% and 7%, with be subscription revenue portion expected to grow 2 to 3 points higher. Both total revenue and subscription revenue growth rates will be significantly lower in the first half of 2017. In fact, total revenue will be a decline against the first quarter of 2016, as we're still burdened by $1.2 million of custom revenue in that period.

Revenue growth for the third and fourth quarters of 2017 over 2016 is expected to accelerate to double digits. Another important measure of Reis's progress during 2017 will be the sequential growth that we record on a quarter-to-quarter basis. Sequential quarterly growth should become apparent starting with this year's first quarter, and continue at meaningful growth rates, quarter by quarter throughout 2017.

Our guidance for 2017 Reis services EBITDA is for annual growth between 6% and 8%, which would result in annual Reis services EBITDA margins around 33%. Our guidance for consolidated adjusted EBITDA for the full year of 2017 is for low single-digit growth, which would result in an annual consolidated adjusted EBITDA margin around 27%.

EBITDA and adjusted EBITDA will be lower in the first two quarters of 2017, compared to 2016. Margins will range between 28% and 30% for Reis services EBITDA in the first and second quarter of 2017, and consolidated adjusted EBITDA margins will range around 22% and 24% in the first two quarters. As with revenue, EBITDA and adjusted EBITDA will improve on a sequential-quarter basis, with significant double-digit growth occurring in the third and fourth quarters of 2017 over 2016.

As I also noted with revenue, we anticipate that the Company's annualized rate of EBITDA and adjusted EBITDA growth exiting 2017 will significantly exceed the double-digit threshold. We also expect that the margins as we exit 2017 will approach our historic range of 38% to 40% for Reis services EBITDA, and will be in the 34% range on a consolidated basis.

This concludes my comments on the financial results for Reis's fourth-quarter and year-end December 31, 2016. At this time, I would like to open the call for questions from the analyst community.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

Ian Corydon, B. Riley & Company.

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Ian Corydon, B. Riley & Co. - Analyst [2]

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Thank you. In the Q4 revenue guidance that you had provided, can you just tell us if the $200,000 in other revenue was already baked into that forecast?

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Mark Cantaluppi, Reis, Inc. - VP and CFO [3]

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You are talking about for what we did for 2016?

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Ian Corydon, B. Riley & Co. - Analyst [4]

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For Q4 of 2016.

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Mark Cantaluppi, Reis, Inc. - VP and CFO [5]

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Yes.

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Ian Corydon, B. Riley & Co. - Analyst [6]

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It was included.

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Mark Cantaluppi, Reis, Inc. - VP and CFO [7]

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Yes.

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Ian Corydon, B. Riley & Co. - Analyst [8]

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Okay. And I think you have typically provided customer counts or enterprise customer counts in the 10-K.

I haven't gotten through that yet. Can you talk about where the number of customers stands today, and what kind of trends you expect in 2017?

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Mark Cantaluppi, Reis, Inc. - VP and CFO [9]

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You know, for right now, 2016, that really has not materially changed. We expect with 2017 the initiatives that we are undergoing, we expect our number of customers to rise over the course of the year.

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Ian Corydon, B. Riley & Co. - Analyst [10]

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Okay. And in terms of the Q4 EBITDA, it looked like that came in below your expectations. Was that a revenue or margin issue?

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Mark Cantaluppi, Reis, Inc. - VP and CFO [11]

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I am sorry, Ian. Could you say that again?

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Ian Corydon, B. Riley & Co. - Analyst [12]

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Yes. It looked like the Q4 EBITDA numbers came in below maybe what you were expecting, and just not sure if that was a issue of revenue coming in towards the low end of guidance, or whether that was additional expenses you incurred.

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Mark Cantaluppi, Reis, Inc. - VP and CFO [13]

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It was a combination of the two. As we -- with probably more of it being derived from the expense side, as we were continuing to hire in some of these additional Management positions in the fourth quarter.

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Ian Corydon, B. Riley & Co. - Analyst [14]

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Okay. Final question is just on the reaction you're getting to the enhanced sales comparables. Can you just talk about what you're hearing from customers, and also, whether that is generating additional new customers or whether that is primarily an upsell to existing customers?

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Lloyd Lynford, Reis, Inc. - President and CEO [15]

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Yes, Ian, it is Lloyd. I would say it is coming from both. And I think the specific color on it is that, historically, we tended to focus on our property types, the eight or nine property types in our MSAs, which was very, very good for the financial institutions that we focused on.

But there was a large user base outside of that, particularly in the brokerage world and the buyer-seller world, that could have a transaction kind of anywhere, any specialty type, very small building. So, what we have been talked about and which we have launched in September, was the every sale, everywhere program.

So, specifically, yes, it has attracted interest from new user types in the, for example, in the property tax appeal area, in the investment sales brokerage area, even getting interest among the assessor community, which is obviously a highly-localized user of local property sales transaction data. So, I would say those initiatives to flesh out those core investment grade or properties that we have always done for the last 13 or 14 years to include the smaller property types outside of our metro areas really has made our offering much more competitive for people who are spending big dollars on alternatives.

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Ian Corydon, B. Riley & Co. - Analyst [16]

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Got it. And I guess just one last final question.

In terms of the revenue guidance for 2017, I think the last time you provided guidance, you did not disaggregate between subscription versus other, and you are doing that today. Can you just talk about, is the guidance lower or is that not the case?

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Lloyd Lynford, Reis, Inc. - President and CEO [17]

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Well, perhaps just a little bit, but not as much in the sense that -- probably not as much, because the other we're continuing to phase out. So, as we continue to phase out the other in 2017, and is even lower levels in 2016, we have a reduction in growth, if you will, pushing against the subscription revenue. So, maybe it is a little bit of both, but it certainly is a further phase-out or reduction in dependence on one-time non-recurring types of revenue.

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Ian Corydon, B. Riley & Co. - Analyst [18]

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Got it. Thank you.

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Operator [19]

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John Godin with Lake Street Capital.

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John Godin, Lake Street Capital - Analyst [20]

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Hey, guys. Thanks for taking questions. Just quickly on some of these win-backs. Why do you think (inaudible) those customers left in the first place and what brought them back, ultimately?

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Lloyd Lynford, Reis, Inc. - President and CEO [21]

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Yes. So, I think as I tried to allude to, those losses were typically in, starting I would say, in late 2015 into early 2016, and were concentrated almost exclusively in the conventional apartment sector. I think one of our competitors had made some noise in that particular arena about being able to bring data from a market place type of offering and transform it into analytics.

It had some logic to it. It had some sizzle to it. But I think as the course of the year went out that people who switched to that for purposes of underwriting deals, pursuing transactions, doing due diligence, found that the kind of market information that they had long been used to getting from Reis, the kind of trend analysis at the market level, with sub-market level, the individual building level, was not really there.

We had a number of people come back in the fourth quarter when their first subscriptions came up to an alternative service that said, this service really does not have any meaningful market information. It might have occasional listings that pop up and go away as landlords and brokers list individual apartments for lease.

But that is not really turning into meaningful decision support, and a number of institutions and smaller players came back to us in the latter part of the year, and into this year, as well. Does that give you some color?

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John Godin, Lake Street Capital - Analyst [22]

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Yes. That is helpful and just going off that, do you see more kind of room for that to continue as 2017 rolls out?

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Lloyd Lynford, Reis, Inc. - President and CEO [23]

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Yes. And I see that happening, by the way, in other property types, not in the sense that we would need to take people back. But I do not see meaningful work going on in the underlying databases and analytical products really in any other place in the industry, so, I think that continues to be our bailiwick, and we will continue to have growth in 2017, as a result.

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John Godin, Lake Street Capital - Analyst [24]

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Cool. And then just one more on, as you kind of roll off these double-rent costs, et cetera, do you anticipate those kind of being offset by this kind of increased build-out of the sales force?

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Mark Cantaluppi, Reis, Inc. - VP and CFO [25]

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I think at this point, this is Mark, I think at this point in time, we have gotten ourselves to a new level of cost stabilization with regards to the hiring that we have done during 2016. So, I do not necessarily think that we will continue to see significant growth in costs related to sales hires at this point in time for 2017.

Hopefully, that will all flow as we pay additional commissions on additional sales and sales growth during 2017. But I think headcount-wise for right now, we have stabilized.

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Lloyd Lynford, Reis, Inc. - President and CEO [26]

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Just one last point on that, is that since the double-rent costs were concentrated in a little bit of the second, and mainly the third, and then a little bit into the fourth quarter, but it is really the third quarter that has the largest double rent. One of the reasons I think that you heard our confidence about stronger EBITDA growth in the second half of the year, besides the fact [be it traditional] top-line growth that we had already explained, is the fact that those expenses will in fact not be there this year and they are not going to be replaced by other things, to Mark's point.

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John Godin, Lake Street Capital - Analyst [27]

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Awesome. Thank you very much, guys.

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Lloyd Lynford, Reis, Inc. - President and CEO [28]

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Thanks, John.

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Operator [29]

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Michael Graham, Canaccord.

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Austin Moldow, Canaccord Genuity - Analyst [30]

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Hi, it's Austin on for Mike. Thanks for taking my question.

In the cost of sales line, I was wondering if you could talk about maybe what are some of the fastest-growing parts in there, and if this is the right gross margin level to expect in the future, or if you anticipate any expansion going forward.

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Lloyd Lynford, Reis, Inc. - President and CEO [31]

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Sure. If you're looking straight off the income statement and our cost of sales, one of the bigger components in there was additional amortization expense during the year, as a result of continuing to roll out some of the big builds that we did, particularly in 2016 with the build of our affordable housing database.

Coupling that with the additional expansion opportunities that we have taken on our sales comparables and sales transactions database, that has been a big contributor. In addition to that, there was some significant expansion in the area there with regards to hiring that we did as we built out our White Plains operations facility, where in the fourth quarter and in 2016 we saw additional costs flowing through there, as we were trying to build out and meet these initiatives with regards to product. I think that the margin that you have, the gross margin that you have there for 2016, probably on a run rate basis, is reasonable, but should improve as we move through the second half of the year, as we get that realization of greater revenue with a more stable expense base.

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Austin Moldow, Canaccord Genuity - Analyst [32]

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Okay. Thanks.

And then on the sort of the conversation, I was wondering if I could get some -- I know it is early, but maybe anecdotal information thus far on some of these custom data deliverables, conversations that you might be having to get them, as my understanding is, on a more contractual relationship. And how have those conversations been and what is the pipeline look like for the future?

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Lloyd Lynford, Reis, Inc. - President and CEO [33]

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Yes. So, and again, we are not overemphasizing that. We talked about it as a way of replicating some of the revenue from 2015.

But basically, we have a tool of our portfolio products, and this, what you're talking about, custom data deliverables falls within that area, where we can either use our portfolio analytics tool to embed that at a client's site and allow them to upload their portfolio. That said, there are a number of institutions that are building their own models, or need to build a challenger model. And to that, what they do is they license data from us.

So, we have a number of conversations and have had a number of sales in that area in 2016, where we provided data to organizations to help them do with it what they will, and if they license it on a quarterly basis, which to Mark's point, is why that revenue can then be recognized ratably, as opposed to a one-time data dump. But most importantly, I would say what the most important aspect of the conversations that we're having to date and the pipeline to date is around the development of an API, an application program interface that allows our clients to access these big data sets, and just to deliver them and embed them in a routinized way right into their workflow.

So, we have a number of things that speak to this delivery of data on a licensed basis in bulk that can produce revenues, and so, that is where some of the conversations are happening. Happening with the model builders, and then it is happening more with the workflow type of people who are doing underwriting more through the API approach.

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Mark Cantaluppi, Reis, Inc. - VP and CFO [34]

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And again, to reiterate what Lloyd said, with a greater focus on this being of a more recurring nature, so, this way it is not taken as lumpy one-time revenue, where they will be able to get a stream of information on a continual basis.

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Austin Moldow, Canaccord Genuity - Analyst [35]

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Okay. Got it. Thanks a lot.

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Lloyd Lynford, Reis, Inc. - President and CEO [36]

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Sure.

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Operator [37]

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William Gibson, ROTH Capital Partners

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William Gibson, ROTH Capital Partners - Analyst [38]

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Thank you. I have got a question on the sales force additions. What is your sense of how long it takes for a new salesperson to get to full productivity?

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Lloyd Lynford, Reis, Inc. - President and CEO [39]

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I think, typically, given our training protocols, we expect full productivity within a four to six-month window.

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William Gibson, ROTH Capital Partners - Analyst [40]

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Okay. And then, just secondly on the website and database investment, the big increase last year, is that largely behind us or does it stay at that level this year?

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Mark Cantaluppi, Reis, Inc. - VP and CFO [41]

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That is a great question, and I know as I had been thinking about where we would be for 2017, I originally had thought that, gee, the level of the spending that we had done in 2016 may pull back a little bit. But as we finalized our budgets for 2017, and these additional initiatives that we have in line, including what we just did with the additional expansion of our affordable housing database, with what we have just done with sales comps, and with this big move to move into land comps as part of our sales transaction database, I actually see that level of investment either staying at this $8 million-odd level, or maybe slightly increasing in 2017.

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William Gibson, ROTH Capital Partners - Analyst [42]

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Thank you.

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Operator [43]

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And I am showing no further questions at this time. I would now like to turn the call back over to Mr. Lynford for any further remarks.

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Lloyd Lynford, Reis, Inc. - President and CEO [44]

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Thank you to all who have listened and participated in our call. As always, Mark and I are available to speak to current and prospective shareholders of Reis, and we would be happy to answer your questions within the parameters regarding selective disclosure.

Our next call will be in early May to announce and discuss our first-quarter 2017 results. We appreciate your continuing support of Reis. Thanks, and have a good day.

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Operator [45]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes the program, and you may all disconnect. Everyone, have a great day.